Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) Q1 2024 Earnings Call Transcript

Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) Q1 2024 Earnings Call Transcript May 13, 2024

Verrica Pharmaceuticals Inc. beats earnings expectations. Reported EPS is $-0.43738, expectations were $-0.54.

Operator: Ladies and gentlemen, good morning, and welcome to the Verrica Pharmaceuticals First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Calabrese from LifeSci Advisors. Please go ahead.

Chris Calabrese: Thank you, Operator. Hello, everyone, and welcome to Verrica Pharmaceuticals first quarter 2024 corporate update and earnings conference call. With me on the line this morning are Ted White, President and Chief Executive Officer of Verrica Pharmaceuticals; Joe Bonaccorso, Chief Commercial Officer; Terry Kohler, Chief Financial Officer; Dr. Gary Goldenberg, Verrica’s Chief Medical Officer; and Chris Hayes, Verrica’s Chief Legal Officer. As a reminder, during today’s call, management will make forward-looking statements. These statements may include expectations related to the launch and commercialization of YCANTH for the treatment of molluscum contagiosum in the United States, regulatory developments, the developments of Verrica’s product candidates, our expected cash runway, our potential agreements with Torii and Dormer Labs, as well as overall business strategy and planned operations.

These forward-looking statements are based on the company’s current expectations and involve inherent risks and uncertainties. And based on those risks and uncertainties, Verrica’s actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verrica’s SEC filings for important Risk Factors. Verrica cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations. In addition, during today’s call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.

There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent. Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on the Investor Relations section of our website. I’ll now turn the call over to Verrica’s President and CEO, Ted White. Ted?

Ted White: Thank you, Chris, and good morning, everyone, and thank you for joining us for the first quarter 2024 earnings call. I’d like to begin today’s call by discussing the progress we’ve made with the launch of YCANTH, which remains the top priority for the organization. I will also speak to the progress we have made on removing unlawfully compounded cantharidin from the market. I’ll then provide an update on recent regulatory developments and then briefly talk about our pipeline activities. Following my remarks, I’ll ask our Chief Commercial Officer, Joe Bonaccorso, to provide a more detailed overview of YCANTH launch. Our Chief Financial Officer, Terry Kohler, will then review our first quarter financial performance. Finally, we’ll open up the call and take your questions.

I’m pleased to report for the first quarter of 2024, we recorded YCANTH net revenues of $3.2 million, which reflects continued growth in demand for our product and continued progress in growing our prescriber base. As I stated on our fourth quarter earnings call back in March, the successful launch of YCANTH remains our top priority. We now have two full quarters of commercial operations under our belt, and over this critical time period, we have successfully executed on key launch strategies and tactics, which include securing favorable payer reimbursement, the issuance of a permanent J-code, growing product utilization and our prescriber base, gaining formulary acceptance at major pediatric institutions and IDNs, removal of unlawfully compounded cantharidin and YCANTH’s NCE listing in the Orange Book.

Through April 30, we significantly expanded our eligible Medicaid patient population by adding New York State, the State of Florida, and Louisiana. The total number of lives eligible to receive YCANTH therapy covered by insurance now stands at 228 million, which include lives that are covered commercially through state Medicaid programs and through Tricare and Federal Employee programs. We’ve also secured 31 hospital formulary approvals including Rady Children’s Hospital, Children’s Hospital of Philadelphia, and UNC. A major step in executing our commercial strategy was to secure a permanent J-code for YCANTH, and this went into effect starting on April 1. As a reminder, the J-code helps determine how managed care organizations reimburse medical providers for products and served across all payers for reimbursement.

The risk of billing errors is significantly reduced. J-code also allows companies to receive pass-through payments through government sponsored healthcare plans. We believe a permanent J-code will help drive YCANTH utilization in the Medicaid covered patient population and increase overall buy and bill account activity by simplifying the billing and reimbursement process. Although, it’s only been a few weeks since the permanent J-code has been published, we are clearly seeing an uptick in prescription activity as well as buy and bill interest. And we believe the permanent J-code is helping to drive patient access and reimbursement. As a reminder, back in December, we signed agreements with two of the largest PBMs in the United States. Coverage for both PBMs went live on January 1, and we believe these agreements should provide an important growth driver for YCANTH for the remainder of 2024 and beyond.

You recall that we announced an agreement with Walgreens to distribute YCANTH through its specialty pharmacy back in early January. Under this collaboration, we reached an agreement in April to begin supplying Walgreens Community health system stores with YCANTH, which we believe allows healthcare providers and their patients to have better accessibility to YCANTH. We also started to see growing demand from military treatment facilities who obtain product through DMS, a prime vendor to the U.S. Department of Defense. We have continually emphasized that addressing the unlawful compounding of cantharidin is a strategic priority for Verrica and crucially important to the success of YCANTH and more importantly, critical to patient safety. I’m pleased to report that we’ve reached an agreement in principle with Dormer Labs to favorably resolve our concerns raised in the litigation, and we are in the final stages of negotiating that resolution.

I hope to provide you with more detailed statement on the matter in the coming weeks once the agreement is finalized. The first quarter also produced positive news from a regulatory standpoint. On March 26, we announced that YCANTH received NCE status from the FDA, as reflected in its listing in the Orange Book. We are obviously very pleased to have secured NCE status for YCANTH, which provides five years of regulatory exclusivity and further validates our product’s innovation and intrinsic value in the dermatology market. While NCE status will provide YCANTH with a minimum of five years of protection, we fully anticipate our comprehensive patent portfolio to provide additional protection from generic competition for the next decade and potentially beyond.

I’d now like to provide an update on our pipeline. Based on the minutes from our Type C meeting with the FDA in late 2023, we believe that we’ve gained mutual alignment with respect to the overall design of a pivotal Phase 3 trial study with YCANTH that would support an efficacy supplement for the proposed indication of common warts. On the topic, I’m pleased to report that we’ve reached an agreement with Torii Pharmaceuticals related to conducting a joint global Phase 3 trial of YCANTH for the treatment of common warts, which we believe will benefit both parties from a cost and time to market standpoint. The terms of the agreement would allow for Verrica and Torii to start a pivotal Phase 3 clinical trial for common warts in 2025 in the United States and Japan, with a contemplated funding structure that is expected to have minimal impact on Verrica’s cash position.

I hope to be able to share more detailed statement to you on this agreement in the next few days. In addition to our positive news on advancing common warts, we continue to be excited about VP-315, which is being developed for the treatment of basal cell carcinoma. In December, we completed dosing in our Phase 2 study and we expect to announce preliminary top-line data later in the second quarter. We expect this upcoming readouts will provide us with key efficacy measures, including complete clearance as well as the percent of tumor size reduction. As the most common type of carcinoma globally, the commercial opportunity for basal cell carcinoma is sizable with an estimated 3.6 million diagnoses each year in the United States alone. As a reminder, our ongoing Phase 2 study is an open-label, multi-center, dose escalation, proof of concept trial designed to assess the safety, pharmacokinetics and efficacy of VP-315.

As a potential first-in-class oncolytic peptide, VP-315 has been engineered to provide more targeted delivery to stimulate the patient’s immune system and destroyed cancer cells, and is being developed either as a potential non-surgical alternative or as a neoadjuvant chemotherapeutic for basal cell carcinomas. I’ll now turn the call over to Joe to review our commercial progress. Joe?

Joe Bonaccorso: Thanks very much, Ted. As Ted mentioned in his remarks, we continue to gain traction in expanding coverage for the number of patients who are eligible to receive YCANTH therapy. As of April 30, we have reached 228 million lives under coverage, which encompasses commercial, Medicaid, Tricare and Federal Employee health plans. In addition to expanding coverage, we have been focused on streamlining reimbursement for those lives that are covered by creating momentum around the publishing of our J-code on April 1. To-date, we have already seen 106 healthcare plans representing approximately 209 million lives published the J-code, which we believe, overtime will drive broader acceptance by prescribers as the reimbursement process becomes more efficient.

We have also been working throughout the first quarter and into April on enhancing our distribution network and capabilities. As we mentioned on last quarter’s call, we have onboarded DMS as a distributor for the Department of Defense. We have multiple military treatment facilities currently reordering YCANTH, and we expect this to continue to expand in additional facilities both in the U.S. and abroad. We’re also excited to announce that beginning in May; we are expanding our specialty pharmacy network to include Accredo, which is ESI’s specialty pharmacy. Accredo is a premier specialty pharmacy partner and brings a strong network of payer contracts to help facilitate the growth of YCANTH in 2024 and beyond. In addition to adding Accredo as a specialty pharmacy in April, we reached an agreement to expand our distribution relationship with Walgreens.

The broader agreement now provides community health system stores around the country. These stores partner with large health systems and practitioner offices to provide a white glove service that will make YCANTH more readily available to all healthcare professionals seeking to treat. We are excited about the progress we are making in these areas, and we will continue to look for ways to enhance our distribution and provide more options for healthcare professionals going forward. And lastly, as we discussed on our prior earnings call, I’m pleased that we have now added 20 pediatric reps in the major MSAs across the country. These reps were in the field on April 1, and we’re already seeing some early wins and continued strong interest from pediatric groups.

It’s too early to provide more visibility, but this market will be critical in growing the treatment rates of pediatric patients affected by molluscum, and we look forward to providing more updates on this initiative as we move forward. I’ll now pass it to Terry to review our first quarter financial results. Terry?

Terry Kohler: Thanks, Joe. YCANTH revenues were $3.2 million in the first quarter of 2024. We also recognized collaboration revenues of $594,000 in the first quarter of 2024 related to the clinical supply agreement with Torii Pharmaceuticals. Cost of product revenue was $546,000 in the quarter, which included $316,000 of inventory write-offs. Research and development expenses of $4.9 million in the first quarter of 2024 increased versus the first quarter of 2023 by $2.2 million, driven primarily by additional clinical trial costs related to VP-315, as well as costs related to increased headcount. Selling, general and administrative expenses of $16.3 million in the first quarter of 2024 increased versus the first quarter of 2023 by $12 million, driven primarily by commercial activity for YCANTH.

GAAP net loss was $20.3 million, or $0.44 per share, for the first quarter of 2024, compared to a GAAP net loss of $6.6 million or $0.15 per share for the first quarter of 2023. On a non-GAAP basis, which excludes stock-based compensation and non-cash interest expense, the first quarter of 2024, net loss was $17.8 million or $0.38 per share, compared to a net loss of $5.5 million or $0.13 per share in the first quarter of 2023. And finally, as of March 31, 2024, Verrica had aggregate cash and cash equivalents of $48.9 million. The company expects that its cash and cash equivalents as of March 31, 2024, will be sufficient to fund operations into the first quarter of 2025. I’ll now turn the call back to Ted for closing remarks.

Ted White: Thanks, Terry. I cannot be more pleased with how our team has executed over the first quarter of 2024, which has positioned our company to reach our next stage of growth over the next several quarters. To summarize, we received a permanent J-code for YCANTH effective April 1. We signed agreements with two of the largest PBMs in the United States. We entered into a product distribution agreement with Walgreens and strengthened YCANTH’s exclusivity by obtaining NCE status and a listing in the FDA’s Orange Book. The collective impact from these milestones, coupled with our successful efforts to-date on compounded cantharidin, provides a solid foundation for the launch of YCANTH. And as I mentioned earlier, we are already beginning to see increased uptick in YCANTH prescriptions just weeks after receiving our permanent J-code.

I’m equally excited about the prospects for advancing YCANTH into a global, pivotal Phase 3 for common warts with our partner Torii Pharmaceuticals, and the opportunity to share additional data on VP-315 later this year. Both a common warts indication for YCANTH and a non-surgical primary or neoadjuvant therapy for basal cell represents a significant potential value drivers for our company with the large addressable markets. We look forward to providing you updates on both of those opportunities in the near future. That concludes our formal remarks, and now, I’ll turn the call over to the operator for Q&A.

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is from the line of Stacy Ku with TD Cowen. Please go ahead.

Stacy Ku: Good morning. Congratulations on the progress, and thanks so much for taking your questions. We have a few. So first, are you able to discuss any additional early metrics around the J-code in April in terms of account demand? Maybe discuss key learnings as you’re walking clinicians through the kind of publication of April J-code and transition to buy and bill. So that’s the first question. And then the second, it feels like we’re making a lot of momentum with YCANTH, especially in April. So just can you comment on the sales trajectory expectations for the year? How should we be thinking about Q2 just given so much progress versus kind of quarter-to-quarter seasonality, which might impact certain regions? And then last, you talked about broadening to pediatricians.

Do you want to talk about that progress? Are you able to capture patients before they refer to dermatologists? Just walk through your decision again to target pediatricians in addition to gastroenterologist. Thanks so much.

Ted White: Great. Thank you, Stacy. Good morning. This is Ted. I’ll turn the call over to Joe to answer the first part of your question regarding the J-code.

Joe Bonaccorso: Good morning, Stacy. Yes. So the J-code is making nice progress. We had an uptick in new accounts. And just to remind you, the J-code, it rolls into being published April 1. And then the second piece of that is the insurance companies have to start posting their allowables on what physicians can expect on reimbursement. So we had a build going into April with some pre-work prior to the publication and then had accounts come online right when the J-code was published, we saw a nice uptake in both private practices and additional hospitals coming on Board as well. And also as our pediatric team was just hitting the field, we saw some pediatric expansion as well into buy and bill.

Terry Kohler: And Stacy, this is Terry. Good morning. I think your second question was just around revenue cadence and expectations being for the back half of the year. As you know, we’re not going to give any type of formal guidance, but I think what we can say is that we would expect to continue to see quarter-over-quarter growth in our revenue as we go-forward for the remainder of 2024.

Stacy Ku: Okay. Wonderful. And then the last question just on the pediatricians. Are you finding that a lot of these pediatricians are now prescribing YCANTH, or is this just really early days and you’re seeing early interest? Thanks so much.

Ted White: Yes. So Stacy, we’re early into it, but we were bullish about pediatricians prior to the expansion. We were getting a lot of inbound traffic calls on that since we had our approval last July. The expansion into pediatrics, I’m very pleased where we are right now, we’re seeing an uptick in pediatric prescribers week-over-week. We have our pediatric offices. Several of them have jumped on Board with the buy and bill model. Obviously, for them it’s an opportunity to grow revenue in their practices. And also in the hospital setting, the pediatricians are picking up on prescribing as well because the demand in the clinic in pediatric dermatology is very high and that takes some of the volume load off of them. So overall, we expect continued growth in pediatrics and we think that will be a nice part of our model moving forward.

Operator: Thank you. Our next question is from the line of Gregory Renza with RBC Capital Markets. Please go ahead.

Anish Nikhanj: Hi Ted and team, it’s Anish on for Greg congrats on the progress this quarter and thanks for taking our questions. Just a couple from us. Just wanted to get your expectations around the seasonality of molluscum prevalence through the spring, summer, and fall, and potential pull through to YCANTH usage in pediatrics and even adults. And then also lastly on VP-315 in the top-line this quarter, just if you could set expectations for bars of success and even internal or external benchmarks that we can gauge success from. Thanks so much.

Ted White: Yes. Thank you, Anish, for the question. And I’ll take the first question and then I’ll turn it over to Gary for — Gary Goldenberg for the second question. Regarding seasonality, molluscum contagiosum has seen throughout the year. However, you do see peaks in, obviously, the warmer weather months. So typically you’re talking June, July, August timeframe where more kids, as you would expect are out congregating, they’re at summer camps, et cetera, swimming pools. And so you definitely see a higher prevalence of molluscum during those key months. But again, molluscum has seen throughout the year. And then regarding VP-315, let me turn it over to Dr. Goldenberg to provide that information to you.

Gary Goldenberg: Thanks, Ted, Anish. Thanks for the question. Regarding VP-315, we are expecting to release some preliminary data by the end of this quarter. This will include our safety data, which is really the point of the Phase 2 program. As far as efficacy, the way I would think about it is like some of the other drugs that are in the basal cell space that have complete clearance data as well as tumor size reduction data. And there are some parameters that are set by the agency for neoadjuvant therapy, and I would think about it in those terms. Whereas there’ll be a certain percent of subjects that have completed, they have complete clearance meaning that there’s no tumor remaining on histology. And then there are some subjects that have residual tumors, but the tumor size has decreased, whereas those subjects, the drug could be potentially used as a neoadjuvant therapy.

And that’s kind of how we think about the data that we’re going to release by the end of this quarter. Thank you.

Operator: Thank you. Our next question is from the line of Glen Santangelo with Jefferies. Please go ahead.

Glen Santangelo: Yes. Thanks for taking my question. Hey Ted, I think in quarters past, you sort of gave us the mix of what — of the prescribing being mixed between specialty and sort of buy and bill. And I think you said in the past it was sort of 80/20. And I’m kind of curious that post the J-code being published on April 1, are you starting to see a meaningful shift towards buy and bill? And I understand the difference in the economics for the clinician, but is there any sort of economic differential for you depending upon which route the clinician takes?

Ted White: Yes. Thank you for the question, Glen. Absolutely, we’re seeing an increase on the buy and bill accounts, and then from a — I’ll turn it over to Joe to provide more details on that, but with regards to the economics, obviously it’s more economical for Verrica if physicians move to a buy and bill. On the specialty pharmacy side, the costs are a little bit higher only because the fact that the — it’s a white bag model, the product has to be shipped to the physician’s office. So that just incurs a little bit of extra cost. But I’ll turn it over to Joe Bonaccorso with regards to the uptick in accounts.

Joe Bonaccorso: Yes. So just to follow-up on the question around the optimization of specialty pharmacy to buy and bill, we are starting to see the buy and bill side uptick. It’s still early, right? We’re only about a month or so into this, but we’re seeing about somewhere about a 60:40 right now in the early going, specialty pharmacy to buy and bill. And as we continue to get the allowables published by the insurance companies now to give doctors even more certainty on what they can expect on reimbursement, we’re going to expect that shift to continue to happen right. In our out year models, we expect buy and bill to start being the horse that pulls the cart here. So very pleased with the progress early on.

Glen Santangelo: Okay. And Joe, maybe I’ll just stick with you. It kind of sounds like we’re at 228 million lives now covered via commercial insurance Medicaid, Tricare. Are you pretty much fully penetrated at this point? And I know you gave the update on sort of the pediatric sales force you have at this point, but just your overall sort of sales effort where you’re at this point, do you think you’re pretty much staffed sort of where you want to be?

Joe Bonaccorso: Yes. So our penetration of number of lives covered is we’re way up there, right? There’s not going to be much headway left there. It’s really around — working around the edges now getting prior authorizations removed that are typical with new to market drugs. Any prior authorization with YCANTH is a streamlined prior authorization to label. So very often insurance carriers may implement that the first 6 months to 12 months post-launch, and we’re working on getting that removed and that should happen and that should continue to melt away. Your second question, I believe was around the pediatrics. Again, the update there looks very promising for us as an organization. We’re a couple weeks into being fully staffed in that area.

But as we’ve seen, we’re doing a bunch of different tactics to reach that audience, including virtual pediatric medical education programs that run monthly. The response is very high there. We’re seeing continued inbound. The Red Book recently published a need to treat molluscum, which is a change in what they’ve had in the past. And YCANTH was mentioned as one of the therapies in there that you would consider as an optimal choice to treat molluscum when deciding to do that. So a lot of momentum continues there as well.

Operator: Thank you. Our next question is from the line of Oren Livnat of H.C. Wainwright. Please go ahead.

Oren Livnat: Thanks. I have a few. Just to follow-up on the impact of the J-code and uptake. Can you just talk about what you’re hearing in the field with regards to growing success with same day treatment in the office? Are people who are doing buy and bill or have opted-in? Are they successfully adjudicating, I guess, at the front desk, so to speak, that insurance and able to do same day, or are they still having to reschedule, revisits and I’ve a follow-up.

Joe Bonaccorso: Yes. So Oren, it’s really going to be dependent on who that physician has as their insurance carrier. So recently, UnitedHealthcare Optum removed prior authorization. Aetna removed prior authorizations. Cigna has no prior authorization. So the major carriers are allowing no prior authorization, which opens the window for same day treatment for buy and bill, which is outstanding. We also have our hub services and what we’re doing in our model is we’re trying to set the offices up for success, right? So we’re working with them on running claims through our Y-Access program, which is benefit verification driven. And we’re getting the staff and office comfortable with claims coming through and seeing that they will be approved by insurance.

And then that’s turning on the switch for more and more same day treatment. Our philosophy here is, we want to partner wholly with the customer to set their offices up for success and limiting any type of denied claims they may get. And sometimes, very often, that’s just from filing incorrectly or not putting the right codes on. But we want to make sure we’re really serving as a trusted advisor, especially in the early going here. We want to walk them through the process and make sure it’s going to be a clean prescription coming back and they’re not going to encounter any additional work on staff that model seems to be working. I think our customers truly appreciate it and it’s going to allow for a lot of short-term work, for long-term success of the brand.

Ted White: And Oren, this is Ted, I just want to add to that, on the PAs that are in place currently, they are really, we said earlier they’re confirmatory prior authorizations, meaning that it’s a diagnosis of molluscum. It’s — the patient is two years of age and older, and they have at least one molluscum lesion. So that’s the extent of the prior authorizations that are in place.

Oren Livnat: Right. So in practice, I imagine that these offices really want to please their patients, and patients want to be pleased, right? So our — of that 40% of your business, I think you mentioned that’s already buy and bill, are a large portion of those already doing same day, or is that still like upside and work in progress with regards to getting everybody jumping, right [ph]?

Joe Bonaccorso: Yes. Oren, great question. It’s a work in progress, right? And you have to remember, prior to publication; we were working with offices on running claims even though they were filling prescriptions through the specialty pharmacy. We were running the claims in the background in our Y-Access program to start educating offices on, hey, when the J-code is published, these plans right now are favorable with no prior authorization. So you can get started right away. Even with the prior authorization, we’re finding physicians or either clearing the PAs before the patient comes to the office. Remember, a lot of these patients are coming in with referral diagnosis already, or they’re willing to diagnose the patient and bring them back. And in those instances where they absolutely got a treat same day, they may opt into a sample on the first visit, but that’s not a big number.

Oren Livnat: Right. And with regards to compounding, I was expecting to see some formal response from the FDA of one kind or another by now, and I don’t think I did. But it sounds like you’re making progress on your own on the back end. So can you just talk about where we stand on the availability of compounded cantharidin, if any? And do you expect there to be any official top down regulation on that front that’s public from the FDA?

Ted White: Yes. Great, great question, Oren. I’ll start and I’ll turn it over to our Chief Legal Officer. So, to your point, we did file a citizen’s petition and we also filed a drug import alert. We were due to hear back from the agency, call it mid-April, and we have not heard from the agency. So that’s number one. So we’re still waiting to hear. Number two is that we reported that we were successful in shutting down one of the 503B compounding pharmacies here in the United States. We know that there were no 503Bs that have compounded cantharidin in 2024. And we also announced that the last piece of the compounding was to work with Dormer Labs in Canada, where they were importing cantharidin into the country illegally. And so I’m going to turn that part over to Chris Hayes because we made significant strides and again, looking to provide more information to everyone here in the coming days. So I’ll turn it over to Chris.

Chris Hayes: Yes. Thanks, Ted. And Oren, Ted hit the nail on the head. We have not received a response to our citizen’s petition yet. It was due April 16. We did request a response, but as you aptly noted, we seem to organically be getting to the same end result on our own with taking out the 503As, the larger 503As, the 503Bs. If you go on the FDA outsourcing website, the last report has no 503Bs compounding cantharidin. And obviously, the Dormer is a very good result for us.

Oren Livnat: Okay. And just — yes, sorry.

Chris Hayes: No, I was going to say, so although, we have not heard back from the FDA and we still do intend to pursue that. We do — we would like to get that blanket coverage, but we are getting to the same place on our own.

Oren Livnat: Okay. Just lastly, if I may, you did announce some additional distribution agreements this quarter with Accredo and the Walgreens community distribution there. And that along with the J-code update, are there any changes to, I guess 2Q or more importantly, long-term steady state gross-to-net expectations for YCANTH.

Terry Kohler: No, Oren, everything is still in line with what we expected pre-launch. No changes there.

Oren Livnat: All right. Thanks. I appreciate it. Congrats on the momentum.

Ted White: Thank you.

Operator: Thank you. Our next question is from the line of Serge Belanger with Needham and Company. Please go ahead.

Serge Belanger: Hi, good morning. Thanks for taking my questions. First one, maybe for Joe or Ted. Can you just talk about inventory levels at the end of the first quarter, as well as where gross-to-net stand and where you expect them to progress to? And then, lastly, Ted, you talked about the common warts program and an agreement with your partner Torii. I know we’re going to get more details possibly later this week, but should we assume that Torii is going to carry the heavy load on the investment for this program? Thank you.

Ted White: Thank you, Serge, for the question. I’ll turn it over to Terry first with regards to the inventory, and then I’ll handle the common warts study.

Terry Kohler: Hi Serge, good morning. I think you also asked around gross-to-net. So again, our gross-to-net assumptions remain in line with where we were pre-washed. So we’re still expecting to be in that 45% to 50% range over time. We think getting buy and bill, obviously, to grow will help us get closer to that 50% mark. But no changes in terms of those expectations either within the quarter or as we go-forward. In terms of inventory, we continue to supply and turn the channel based on sort of forward-looking demand expectations. So there’s not additional detail I can really provide you at this time for that. But we are supplying inventory in the channel to meet what we think the future demand curve will be.

Ted White: And then Serge, on the common warts, obviously, we’re very pleased with our strong partnership that we have in place with Torii Pharmaceutical in Japan. And I think the question you posed is very accurate, that it’s going to be — it’s going to have very minimal impact on Verrica’s cash position, the way this will be structured. And again, I’ll — I’m hopeful that I’ll be able to share more details on that agreement that will be put in place by the end of this week.

Operator: Thank you. Our next question is from the line of Kemp Dolliver with Brookline Capital Markets. Please go ahead.

Kemp Dolliver: Great. Thanks and good morning. Looking at SG&A, and the addition of the pediatric sales force, I’m assuming what we saw in first quarter is probably not the full run rate. How should we be thinking about the incremental cost near-term with the pediatric sales force on Board?

Terry Kohler: Sure, Kemp. Good morning. So for, you’re absolutely correct. The majority of those additional field reps were in the field starting April 1. So you will see a step up in the second quarter and for the remainder of the year in SG&A. I wouldn’t expect it to materially step up, but you will see a step up.

Kemp Dolliver: Great. Thank you. And admittedly, it’s early days, but what are you seeing with regard to the number of ampoules used per patient so far?

Joe Bonaccorso: Yes. We’re seeing right now somewhere between, I’d say, around 1.5 moving towards 2. We expect our model for patients to be closer to 3 as they’re going through refills, et cetera. Now, remind you, we also lose visibility inside the hospitals. We have no way of tracking what the refill rate looks like in there, right? Because we’re blinded to that patient claims data. It doesn’t come through like on the specialty pharmacy. So our specialty pharmacies are marker for that, Kemp.

Kemp Dolliver: That’s great. Thank you. And with regard to the runway, I’m assuming that does not factor in any additional proceeds from the OrbiMed credit line. Is that correct?

Terry Kohler: Yes, that is absolutely correct.

Kemp Dolliver: Okay. Thank you. And my last question relates to cantharidin that is still out in the field with practices. How much do you think is still out there? And do any of these particularly the Dormer agreement contemplate them taking any inventory in the field back from their customers?

Ted White: Yes. Kemp, this is Ted. I would tell you that first, we have no data to show how much compounded cantharidin is in the market. I could just tell you that there is more out there than we realized. Let’s just put it that way. But there’s no data to give us an actual accurate account. One of the things that we’ll work on in the agreement with Dormer is they’ll be providing us with customers once that agreement gets signed. So that will give us additional information to help understand how much is out there and also who the targets are.

Operator: Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now hand the conference over to Ted White for his closing comments. Ted?

Ted White: Thank you, Operator. I’d like to thank all of you for joining us this morning. We’re obviously very pleased with the significant accomplishments in the first quarter of 2024. And we look forward to providing another update on our second quarter earnings call this August. Thank you.

Operator: Thank you. The conference of Verrica Pharmaceuticals has now concluded. Thank you for your participation. You may now disconnect your lines.